For the wind industry the new year kicks off with a bitter-sweet irony. Two-thousand-and-five was the year in which, for the first time in two decades, the average cost of building a new wind power station went up, rather than down. Yet it was also the year in which the world finally woke up to the fact that generating electricity from the wind makes very good economic sense. So when wind got more expensive it became commercially attractive. Ironic, but also sad. That it took so long for governments and big business to get the message about wind's sound economics is cause for bitterness. Consumers have been denied both clean and cheaper electricity while the world slumbered on. Windpower Monthly's annual analysis of power generation costs has revealed for the past several years that on good sites, wind's generation cost is fully competitive with that of fossil fuel and nuclear technologies. In 2005 that remained true, despite the hike in wind plant equipment prices (pages 43-47). As we demonstrate, even when the extra costs of juggling with wind's variable supply are accounted for, more wind power on a system will often mean cheaper electricity for the consumer. The sweetness of others now accepting wind's good economics is undeniable. When the International Energy Agency, hardly a body known for its greenery, quotes wind generation costs starting at $35/MWh (well within the range of other generation), the wind industry knows it is making headway. When investors scramble to pay over the odds for wind generation assets in Spain (page 25), whispers of money in the wind become shouts. When companies like GE, Shell, and BP all mark it up for investment, the world finally sits up and takes note. "Wind energy is now a commercially viable business, without subsidies, in a number of places around the world," wrote The Economist, an international business magazine, last month. "Provided they are large enough and sited in suitable locations, the most efficient modern wind turbines can produce electricity at a wholesale price (the price at which electricity producers buy and sell power on the grid) competitive with non-renewable sources."High oil prices have much to do with the new-found wisdom on wind. Attention is more keenly focused on viable alternatives to fossil fuel generation than it otherwise would be -- and rising oil prices have dragged up the price of gas. But as The Economist notes, wind's competitiveness is not "simply the result of sky-high oil prices." Policies to cut carbon emissions, the drive for energy security and cost-cutting technology innovations are combining to make wind the generation option of choice.What is true for wind, however, tends to be true for nuclear. At least that is what we are being told. Verifying the claims for nuclear is far from easy though. The problem with comparing the cost of wind with nuclear is that while wind's costs are dead certain and known, nuclear's have a shaky history and its current costs are virtually unknown. The financial data made available by the nuclear industry -- and used for our costs comparison exercise in this issue -- are based on a theoretical government commitment to not only removing the risk premium by supporting a program of nuclear build, but also building ten plant (8 GW). Those conditions do not make for a level playing field, even if they are accepted as realistic. Expose nuclear to the same private sector financing stringencies that wind is bound by and wind is undeniably competitive. The impact of a price hikeThe 20% hike in the average cost of an installed wind plant in 2005 is hardly welcome news for investors, but it is barely causing a ripple. Demand for wind generation is strong and power purchase prices on most of the main markets -- often driven up by rising fossil fuel prices -- are high enough to absorb the cost hike.The stable cash flows on offer in places like Spain, Portugal, the US and Britain make wind station ownership good business. Right now there are more buyers for completed wind projects than developers can build. A developer may have to pay more for its turbines these days, but with cash-rich investors bidding project prices up (and returns on equity down), the chances for clinching a profitable wind farm sale are good. In addition, the 20% increase in equipment costs can be offset by longer contract terms -- and lower risk premiums -- as investors get more comfortable with the technology. Financing a wind plant over a longer period brings down its cost. Contracts of more than 20 years are now being seen.For the wind industry, a market that can accept a 20% price hike is nothing but good news. The sorry financial state of Vestas, still the leading wind turbine supplier, is the tip of an historical iceberg of too tight profit margins throughout much of the chain of production. With demand for wind turbines now outstripping supply, the industry at last has breathing space. Customers are placing huge orders of several hundred megawatt for delivery two and three years ahead (page 36). For perhaps the first time in the wind industry's history, it has the opportunity to cut costs by planning ahead for efficient production, by moving production to regions with cheaper labour costs, and to reduce technology failures by consolidating knowledge achieved to date. While fossil fuel prices are certain to go nowhere but up in the long term, the price of wind power is highly likely to come down -- and probably sooner rather than later.
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